M Venkat Reddy, Hyderabad V. Dy.CIT, Circle-11(1), Hyderabad

ITA 756/HYD/2013

• Counselvise Citation: 75622514 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PALLAVI AGARWAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Opportunity of being heard; Bonafide belief; Source of fund
• Section: 45(2); 143(3); 54F; 131; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.756/HYD/2013 ASSESSMENT YEAR 2007-2008 MR. M. VENKAT REDDY, HYDERABAD. PAN AAKHM1491F VS. THE DCIT, CIRCLE-11(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : SMT. PALLAVI AGARWAL DATE OF HEARING : 29.08.2016 DATE OF PRONOUNCEMENT : 14.09.2016 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER OF CIT-V, HYDERABAD DATED 05.03.2012 UNDER SECTION 263 O F THE I.T. ACT, 1961. THE ASSESSEE HAS RAISED AS MANY AS 7 GROU NDS ON THE ISSUE OF EXERCISING JURISDICTION UNDER SECTION 263 O F THE I.T. ACT, 1961. 2. AT THE OUTSET, THERE IS A DELAY OF 372 DAYS IN FIL ING THE APPEAL BEFORE THE TRIBUNAL. IT WAS SUBMITTED THAT THE ORDE R OF THE CIT-V, HYDERABAD WAS NOT CONTESTED INITIALLY AS ASSESS EE WAS UNDER THE BONAFIDE BELIEF THAT NO APPEAL NEED BE MADE AGAINST SUCH ORDER. HOWEVER, AFTER THE ORDERS PASSED UNDER S ECTION 143(3) READ WITH SECTION 263, THE APPELLANT APPROACHED AN ADVOCATE FOR FURTHER APPEAL AND THEN WAS ADVISED THAT AN APPEAL LIES AGAINST THE ORDER OF THE CIT PASSED UNDER SECTION 263. 2 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. ACCORDINGLY, ASSESSEE PREFERRED APPEAL BEFORE THE TR IBUNAL ON 14.05.2013 WITH A DELAY OF 372 DAYS. IT WAS SUBMITTED TH AT THE DELAY IS FOR THE REASONS SUBMITTED ABOVE WHICH ARE BEY OND THE CONTROL OF THE PETITIONER AND IS NOT INTENTIONAL. AFTER C ONSIDERING THE ASSESSEES PRAYER AND AFFIDAVIT FILED IN THIS REGA RD AND AFTER TAKING THE OBJECTIONS OF THE CIT/D.R. WE ARE OF THE OPIN ION THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT AND REASONAB LE CAUSE IN PREFERRING THE APPEAL. ACCORDINGLY, THE DELAY IS COND ONED. 3. BRIEFLY STATED, SURVEY OPERATIONS UNDER SECTION 133 A WERE CONDUCTED ON 16.10.2008 IN THE BUSINESS PREMISES OF M/S. BHAVANI COMMERCIAL COMPLEX, NACHARAM. DURING THE COU RSE OF SURVEY, STATEMENT WAS RECORDED FROM MR. M. VENKAT REDD Y UNDER SECTION 131 IN RESPECT OF SALE OF LAND SITUATED AT CHEN GICHARLA. IT WAS THE CONTENTION OF THE CIT THAT ASSESSEE ADMITTED THAT CAP ITAL GAINS COULD BE IN THE RANGE OF RS.2 CRORES FOR F.YS . 2005-06 AND 2006-07 AND ASSESSEE WILL WORK-OUT THE EXACT CAPITAL G AINS AND PAY THE TAXES AND FILED THE RETURN IN ABOUT A MONTHS TIME. THE LD. CIT ALSO ACKNOWLEDGES THAT THE INCOME BELONGS TO HU F SINCE THE LANDS ARE ANCESTRAL IN NATURE. HE NOTICED THAT RETURNS OF INCOME WERE FILED ADMITTING CAPITAL GAINS AT RS.11,33,3 71 FOR A.Y. 2007-08 BEFORE CLAIMING EXEMPTION UNDER SECTION 54F A T RS.2,34,047 FOR A.Y. 2005-06. 3.1. LD. CIT IS OBJECTING THAT THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING THE ADDITIONS ON ACC OUNT OF INFLATION OF EXPENDITURE OF RS.13 LAKHS AND COMPLET ED THE ASSESSMENT TAKING INTO CONSIDERATION PARTITION OF THE H UF STATED TO HAVE BEEN TAKEN PLACE. IT WAS THE CONTENTION OF THE CIT THAT ASSESSEE HAS NOT TAKEN THE STATUS OF HUF DURING THE COU RSE OF 3 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. SURVEY AND THE SAME HAS SURFACED WITHIN THE COURSE OF SCRUTINY PROCEEDINGS WHICH SEEMS TO BE AN AFTERTHOUGHT OF THE ASSESSEE. SINCE ASSESSING OFFICER HAS EXAMINED AND ACCEPTED TH E HUF STATUS AND PARTITION THEREON, LD. CIT WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT EXAMINED GENUINENESS OF THE DOCUMENTS AND OTHER MATERIALS SO AS TO FIND OUT WHETHER THE DOCUMENTS SURFACED TO REDUCE THE TAX INCIDENCE. IN ADD ITION TO THE ABOVE, THE CIT ALSO NOTICED THAT ASSESSEE PURCHASED AC.2.00 OF LAND FROM ONE MR. PARAMESHWAR REDDY IN THE MONTH OF NOVEMBER, 2005. ASSESSING OFFICER HAS NOT CALLED FO R ANY DETAILS BUT SIMPLY ACCEPTED THE COMPUTATION OF THE ASSESSEE. SIN CE THE ASSESSEE CLAIMED PARTITION OF HUF IN THE YEAR 2000, THE LAND PURCHASED BY THE ASSESSEE IN 2005 SHOULD NOT HAVE BEE N APPORTIONED TO THE OTHER COPARCENERS AND SHOULD HAVE A SSESSED THE ENTIRE CAPITAL GAIN IN THE HANDS OF THE ASSESSEE ON LY. HE FURTHER NOTICED THAT ASSESSING OFFICER HAS NOT EXAMINED THE INVESTMENTS IN M/S. BHAVANI COMMERCIAL COMPLEX. HE AL SO CONSIDERED THAT ASSESSING OFFICER HAS CONVERTED THE CA PITAL ASSET INTO STOCK-IN-TRADE WHICH ATTRACTS PROVISIONS OF SECTION 45(2) OF THE ACT. BY THE APPLICATION OF THESE PROVISIONS, TAX LIA BILITY OF THE ASSESSEE COULD BE MUCH MORE THAN WHAT IS ASSESSED BY THE ASSESSING OFFICER. FURTHER, HE NOTICED THAT ASSESSING O FFICER HAS COMPLETED THE ASSESSMENTS ON SURMISES WITHOUT ANY BASIS FOR ARRIVING AT THE CONCLUSION THAT THE EXPENDITURE CLAIMED IS ON HIGHER SIDE. LD. CIT WAS OF THE OPINION THAT ASSESSI NG OFFICER HAS NOT BROUGHT ON RECORD THE DETAILS OF EXPENDITURE AS TO H OW THE SAME WAS ON HIGHER SIDE. ACCORDINGLY, HE ISSUED A S HOW-CAUSE NOTICE VIDE LETTER DATED 17.02.2012 . ASSESSEE REPLI ED AS UNDER : 4 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. THE TOTAL RECEIPTS WERE ABOUT RS.3 CRORES FOR ALL THE MEMBERS PUT TOGETHER THE EXPENDITURE WAS TO BE APPROXIMATELY ABOUT ONE CRORE BUT THE ASSESSEE' DID NOT KNOW ABOUT ALLOWABILITY OF INDEXED COST OF RS,67 LA KHS AND 54 F EXEMPTION OF ABOUT 7.5 LAKHS THAT'S HOW THEY T HOUGHT CAPITAL GAIN WOULD BE ABOUT RS.2 CRORES. AS PROMISE D, THE ASSESSEES HAVE FILED RETURNS AND PAID TAXES IN THEI R RESPECTIVE HANDS AS PER THE PARTITION DEED. THE PUR CHASED LAND FROM MR. PARAMESHWAR REDDY WAS NOT PURCHASED B Y M. VENKAT REDDY INDIVIDUALLY BECAUSE ALL THE OTHER OWN ERS ALSO CONTRIBUTED FOR PURCHASE AND WITHOUT THEIR CONSENT THE PURCHASE AND SALE BY MR. VENKAT REDDY ALONE WAS NOT POSSIBLE. HENCE SHORT TERM GAIN WAS OFFERED ON SALE OF THIS LAND BY ALL THE OWNERS IN THEIR RESPECTIVE HANDS AN D COPY OF PARTITION DEED WAS FILED. THE WORKING OF CAPITAL GA IN AS PER SEC.45(2) OF THE IT ACT WAS ENCLOSED WHICH RESULTS IN NET LOSS TO THE REVENUE OF RS.1,04,773/- IN TOTAL FOR ALL TH E ASSESSEE'S PUT TOGETHER. FURTHER THE ASSESSEE HAD NOT MADE ANY INVESTMENT IN M/S. BHAVANI COMMERCIAL COMPLEX WHERE HE IS NOT A PARTNER.' 3.2. ON PERUSAL OF THE EXPLANATION OF THE ASSESSEE A ND ARGUMENTS, THE LD. CIT DID NOT AGREE WITH THE SAME AND HAS SET ASIDE THE ASSESSMENT TO THE ASSESSING OFFICER TO MAKE PR OPER ENQUIRES AND PASS FRESH ASSESSMENT ORDER AFTER AFFOR DING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. OBJECTING TO THE ABOVE ORDER OF THE LD. CIT, LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS NOT ACCEPTED RS.2 CRORES INCOME AND THAT ONLY STATED MERELY THAT THE 5 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. PROPERTY BELONGS TO HUF AND THE ENTIRE GAIN MAY BE A ROUND RS.2 CRORES. IT WAS SUBMITTED THAT THE ASSESSING OFFICER RELIE D ON THE MATERIAL IMPOUNDED IN SURVEY AND HAS EXAMINED THE PA RTITION DEED WRITTEN ON STAMP PAPER DATED 01.05.2000 AND ACCE PTED THAT THE PROPERTY WAS PARTITIONED BETWEEN THE LEGAL-HEIRS AND ACCORDINGLY ASSESSEE SHARE WAS ONLY ASSESSED IN ASS ESSEES HANDS. FURTHER IT WAS SUBMITTED THAT ASSESSING OFFICER HAS IN DETAIL EXAMINED NOT ONLY THE VALUATION OF THE PROPERTY BUT ALSO THE COST OF IMPROVEMENTS CLAIMED BY ASSESSEE AND HAS W ORKED- OUT THE SHORT TERM CAPITAL GAINS AS WELL AS LONG TERM CA PITAL GAINS AS CAN BE SEEN FROM THE ORDER ITSELF. IT WAS SUBMITTED TH AT THERE IS NO ERROR IN THE ORDER PASSED BY THE ASSESSING OFFI CER. MOREOVER, THE ISSUE OF PARTITION WAS EXAMINED IN A.Y. 2006-07 ITSELF AND ASSESSING OFFICER HAS SIMILARLY COMPUTED TH E INCOMES IN A.Y. 2006-07. EVEN THOUGH THE LD. CITS INITIAL PAR A REFERS TO SURVEY STATEMENT FOR BOTH THE ASSESSMENT YEARS, SURPRISI NGLY, THE LD. CIT DID NOT UNDERTAKE ANY PROCEEDINGS UNDER SECTIO N 263 FOR A.Y. 2006-07 WHICH ARE BECOME FINAL AS THE ADDITIONS MADE IN THAT YEAR HAVE BECOME SUBJECT MATTER OF APPEAL BEFORE C IT(A). THEREFORE, IF THE STATUS OF THE ASSESSEE WAS NOT DISTUR BED IN A.Y. 2006-07, THE SAME CANNOT BE DISTURBED IN A.Y. 2007-0 8. MOREOVER, ONE OF THE CONTENTION OF THE LD. CIT WAS THAT THERE IS NO ORDER UNDER SECTION 171 OF THE I.T. ACT ACCEPTING TH E PARTITION OF THE ASSESSEES HUF. IT WAS SUBMITTED THAT SECTION 171 W OULD APPLY IN A CASE OF HITHER TO ASSESSEED PERSON ONL Y AND SINCE THE ASSESSEE WAS NOT ON RECORD OF THE DEPARTMENT EARLIER, THE QUESTION OF AN ORDER UNDER SECTION 171 DOES NOT ARISE. HE PLACED THE ORDERS IN A.Y. 2006-07 OF THE ASSESSING OFFICER A ND THE CIT ON RECORD TO SUBMIT THAT THESE MATTERS HAVE BECOME FINAL IN A.Y. 2006-07 SO THE ORDER OF CIT SETTING ASIDE THE ISSUE FOR 6 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. EXAMINATION DOES NOT SURVIVE. LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON VARIOUS CASE LAW FOR THE PROPOSITION T HAT ORDER OF THE CIT IS NOT ACCORDING TO THE PRINCIPLES LAID DOWN ON THE SUBJECT WHILE INVOKING THE POWERS UNDER SECTION 263. 5. LD. CIT D.R. SUBMITTED THAT ASSESSEE HAS NOT CLAIMED ANY STATUS OF HUF DURING THE SURVEY PROCEEDINGS AND THE ORDERS UNDER SECTION 171 ARE REQUIRED TO BE PASSED TO ACCEPT TH E PARTITION OF HUF CLAIMED BY WAY OF AN AGREEMENT ON STAM P PAPER. WITH REFERENCE TO THE PURCHASE OF LAND, THE ASSESSING OFFICER HAS NOT EXAMINED THE SOURCE OF FUNDS AND ACCEPTED THE PAR TITION AND THEREFORE, THE ASSESSING OFFICERS ORDER IS ERRONEOUS TO THAT EXTENT. THE LD. D.R. SUPPORTED THE ORDERS STATING THAT A CCEPTANCE IN A.Y. 2006-07 DOES NOT EFFECT THE ISSUES IN A.Y. 20 07-08. 6. IN REPLY, LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ORDER UNDER SECTION 171 WERE REQUIRED ONLY IN THE CASE WHERE ASSESSEES WERE HITHERTO ASSESSED AS MENTIONED IN THE SECTION AND RELIED ON THE ORDER OF THE HONBLE KARNAT AKA HIGH COURT IN THE CASE OF UGARMAL NEMICHAND VS. SECOND INC OME TAX OFFICER AND ANOTHER 163 ITR 630 (KAR.) (HC). WITH REF ERENCE TO AGREEMENT OF MR. PARAMESHWAR REDDY HE SUBMITTED THAT TRANSACTION HAPPENED IN NOVEMBER, 2005 RELEVANT FOR A. Y. 2006- 07 WHICH HAD BECOME FINAL, CONSEQUENTLY THE ISSUE DO ES NOT ARISE IN A.Y. 2007-08. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE DOCUMENTS ON RECORD. AS SEEN FROM THE STATEMENT, DU RING THE SURVEY PROCEEDINGS ITSELF ASSESSEE HAS CLEARLY ADMIT TED THAT LAND IS OF ANCESTRAL NATURE AND THE FACT WAS ALSO ACCEPTED B Y THE CIT IN THE FIRST PARA OF THE ORDER UNDER SECTION 263 ITSELF. SO WHETHER 7 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. THE LAND PERTAIN TO BIGGER HUF OR SMALLER HUF, IS A MA TTER OF EXAMINATION. LD. ASSESSING OFFICER BASED ON THE DOCUM ENTS FURNISHED BY THE ASSESSEE HAS EXAMINED AND ACCEPTED THE VERACITY OF THE PARTITION OF HUF IN THE YEAR 2000 ITSEL F. PROPORTIONATE AMOUNT PERTAINING TO THE ASSESSEE WAS AC CEPTED. HE PASSED SIMILAR ORDERS BOTH IN A.YS. 2006-07 AND 2 007-08. SURPRISINGLY, THE LD. CIT, WHILE STATING IN PARA-2 OF THE ORDER THAT ASSESSEE HAS ACCEPTED INCOME IN F.YS. 2005-06 AND 2 006-07, HAS EXERCISED THE JURISDICTION UNDER SECTION 263 ONLY FOR F.Y. 2006-07 RELEVANT FOR THE IMPUGNED A.Y. 2007-08. ASSESSEE ALSO EXPLAINED THAT THERE ARE NO INVESTMENTS IN M/S BHAVANI COMPLEX. S O CALLED PURCHASE OF PROPERTY FROM MR. PARAMESHWAR REDDY HAP PENED IN NOVEMBER, 2005 WHICH IS RELEVANT TO A.Y. 2006-07, IN WHICH NO PROCEEDINGS HAVE BEEN INITIATED BY THE CIT. THEREFORE , THE VERY BASIS FOR LD. CITS SATISFACTION THAT THE ORDER IS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IS NOT CORRECT, AS HE COULD HAVE INITIATED THE PROCEEDINGS IN THE FIRST YEAR I.E., A .Y. 2006-07 AND NOT IN A.Y. 2007-08 OR FOR BOTH THE YEARS SO THAT T HE ISSUE CAN BE EXAMINED IN DETAIL AFRESH. SINCE HE HAS NOT DO NE ANYTHING IN A.Y. 2006-07 AND THE MATTERS HAVE BECOME FINAL, WE ARE OF THE OPINION THAT PROCEEDINGS INITIATED FOR A.Y. 2007-08, DO ES NOT BECOME PREJUDICIAL TO THE INTERESTS OF REVENUE IN THIS Y EAR. APART FROM THAT AS SEEN FROM THE ORDERS OF THE ASSESSING OFFI CER, HE HAS EXAMINED ALL THE ISSUES ALONG WITH THE DOCUMENTS IMPOUN DED AND HAS COMPUTED THE INCOMES AFTER DUE EXAMINATION. TH EREFORE, IT CANNOT BE STATED THAT THE ASSESSING OFFICER HAS NOT VE RIFIED THE ISSUES PROPERLY. ON THAT REASON ALSO, LD. CIT VIEW THA T ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE PROPERLY CANNOT BE ACCEPTED. NOT ONLY THAT, HIS REASONING THAT THERE SHOULD BE AN ORD ER UNDER SECTION 171 WHILE ACCEPTING HUF IS ALSO NOT CORRECT AS THE ORDER 8 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. UNDER SECTION 171 IS REQUIRED ONLY IN A CASE WHERE A SSESSEE WAS HITHERTO ASSESSED. SINCE ASSESSEE WAS NOT ASSESSED PRIOR TO THE YEAR 2000, THE QUESTION OF AN ORDER FOR PARTITION HAPPE NED IN THE YEAR 2000 DOES NOT ARISE. ON THAT REASON ALSO, THE ORD ER OF CIT IS NOT CORRECT AND IS NOT AS PER LAW AS PROPOUNDED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF UGARMAL NEMICHAN D VS. SECOND INCOME TAX OFFICER AND ANOTHER (CITED (SUPRA) ). IN THAT CASE, THE HONBLE HIGH COURT HAS HELD AS UNDER : SEC. 171 REGULATES THE ASSESSMENTS OF HUFS THAT HA D BEEN ASSESSED TO TAX UNDER THE ACT, BUT ARE LATER PARTIT IONED. THE HUFS PREVIOUSLY ASSESSED TO TAX, BUT AFTER THEIR PA RTITION, CANNOT BE COMPARED TO HUFS BEFORE PARTITION OR TO S UCH FAMILIES THAT ARE NOT ASSESSED TO TAX ALSO. 7.1. FOR THESE REASONS, WE ARE OF THE OPINION THAT TH E CIT HAS NOT CORRECTLY EXERCISED THE JURISDICTION UNDER SECTI ON 263 IN THIS YEAR. ACCORDINGLY, WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF LD. CIT U/S 263 AND RESTORE THE ORDER OF THE ASSESSING OFFICER. ASSESSEES GROUNDS ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.0 9.2016. SD/- SD/- (SMT. P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 14 TH SEPTEMBER, 2016 VBP/- 9 ITA.NO.756/HYD/2013 MR. M. VENKAT REDDY, HYDERABAD. COPY TO 1. MR. K.CH. SUBBA RAO, HYDERABAD. C/O. MR. P. MURA LI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. ACIT, CENTRAL CIRCLE-3, HYDERABAD. 3. COMMISSIONER OF INCOME TAX (CENTRAL), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 4. ADDL. CIT, C.R-2, HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE